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Thursday, January 23, 2014

Required Records IRS Summons Enforced Again (1/23/14)

In United States v. Gendreau (SDNY DKT 12 Misc 303 1/22/14), here, Judge Pauley again rejected the taxpayer's claim of privilege for foreign account documents. The compulsory process in question was an IRS Summons for her BSA required records of her foreign financial accounts. (By way of background, five Circuit Courts of Appeals, including the Second Circuit covering SDNY, have rejected the privilege claims made in the context of a grand jury subpoena; this Fifth Amendment claim is in the context of an IRS summons, but I don't think the type of compulsory process matters.)

I have reviewed the opinion very briefly. I don't think it adds much to the general consensus -- and unanimity in the courts of appeals -- that the Fifth Amendment is not a basis for avoiding compelled production of BSA required records.

The context of this opinion is that, on January 25, 2013 Judge Pauley ordered production of the BSA required records on the basis that the required records doctrine trumped Fifth Amendment claims. In response to that order:

Gendreau produced 976 pages to the IRS. But 477 of those pages were documents that the summons specifically stated it was not seeking because the IRS had obtained them by other means. Moreover, Gendreau produced documents responsive to only 6 of the Government's 32 document requests. 14 On :March 15, 20l3, Gendreau responded to the balance of the summons's document requests with a letter asserting her Fifth Amendment privilege in blunderbuss fashion. 15 As to each request, the letter stated "Ms. Gendreau is asserting her Fifth Amendment right against self-incrimination with respect to records that are otherwise responsive to this category." And for the six document requests Gendreau did respond to, she asselied her Fifth Amendment privilege over otherwise responsive records she did not produce. On March 26, 2013, Gendreau appeared for a deposition and testified under oath.

The Government then requested:

either a privilege log of the documents Genreau was withholding with information sufficient to substantiate her assertion of privilege or that she provide those withheld documents to this Court for in camera review. Gendreau maintained she had asserted privilege on a document-by-document basis and refused to provide a privilege log or submit the documents for review. On September 30, 2013, the Government filed this motion seeking enforcement of the January 25 order.

Here are the key steps in the opinion:
It is established law that the Government cannot complain to the assertion of the Fifth Amendment except in the context of specific questions propounded by the Government. Apparently at the deposition, the Government failed to ask specific questions. The taxpayer cried "gotcha." But Judge Pauley said:

Gendreau argues the Government waived the right to object to her assertions of privilege by not questioning her on a category-by-category and document-by-document basis at her March 26, 2013 deposition. Other circuits have held the Government cannot complain of a "blanket assertion" of Fifth Amendment privilege if the respondent has not had an opportunity to assert the privilege on a document-by-document basis. See United States v. Gable, 98 F.3d 251, 255 (6th Cir. 1996); see also United States v. Drollinger, 80 F.3d 389,392-93 (taxpayer did not waive Fifth Amendment privilege by failing to raise it because Government did not ask relevant and specific questions); United States v. Bodwell, 66 F.3d 1000, 1001-02 (9th Cir. 1995) (same). But Gendreau has had an opportunity to respond on a document-by-document basis - she responded to the Government's requests in her March 15, 2013 letter by repeating her blanket invocations of privilege, and she refused to provide a privilege log or submit the documents for in camera review. "A taxpayer cannot refuse to produce a privilege log or documents for in camera review ... and then protest an insufficient opportunity to present a claim of privilege." United States v. Bright, 596 F.3d 683, 692 (9th Cir. 2010). Moreover, none of the cases cited by Gendreau hold that the Government waives its right to object to the assertion of privilege, only that a respondent must have an opportunity to properly raise the privilege.

The Court then went to the key issue -- whether the taxpayer had complied with the earlier order.

Gendreau contends that she complied with this Court's January 25 order and asserted her Fifth Amendment privilege on a document-by-document basis, It may be appropriate to respond to an entire document request with an assertion of privilege if every document responsive to that request is in fact privileged. See Bright, 596 F.3d at 691-92. But the danger of self-incrimination must be "readily apparent." Estate of Fisher v. Comm'r of Internal Revenue, 905 F.2d 645,649 (1990); see also United States v. Cianciulli, Case No.M- 18-304(RMB) (IHK), 2001 WL 1097919, at *2 (S.D.N.Y. Sept. 19,2001). Gendreau bears the burden of establishing that danger. Estate of Fisher, 905 F.2d at 649. Here, the document requests themselves do not make it "readily apparent" that the act of production - as distinct from the contents of the documents sought - would tend to incriminate Gendreau. And by refusing to provide a privilege log or to submit the requested documents for in camera review, Gendreau has failed to meet her burden of showing that production would incriminate her.

Gendreau's failure to comply with the January 25 order is clearly established by the fact she continues to assert her Fifth Amendment privilege over the production of documents this Court held were within the required records exception. Ihis Court held that records account holders are required to keep under the Bank Secrecy Act are not protected by the act of production privilege.

* * * *

Despite this Court's ruling that records under the Bank Secrecy Act are not protected by the act of production privilege, Gendreau's counsel reiterated that assertion of privilege. At oral argument, Gendreau's counsel stated he believed the required records ruling was "in effect dicta till we came back to the Court today after the -- after a valid assertion of privilege .... [W]e thought that the Court in effect was announcing in advance what its ruling would be but thought the privilege had not been invoked yet, so the Court was not issuing the following ruling." Jan. 25,2013 Tr. at 7:21-22; 8:7-10. Gendreau's assertion of privilege over documents she is required to keep under the Bank Secrecy Act - after this Court held they are not privileged - demonstrates a disregard for this Court's January 25 order.

Gendreau also argues that even if records under the Bank Secrecy Act are not privileged, she is not required to produce any documents responsive to the Government's subpoena because it seeks documents beyond those she is required to keep. This argument is meritless. When some documents that are responsive to a request are privileged and others are not, a respondent must produce the non-privileged documents and assert privilege over the remainder; she cannot simply refuse to comply at all because some responsive documents are privileged. Moreover, Gendreau's argument that the Government's requests are overbroad appears to be premised in part on the fact that her records contain more information than the bare minimum required under the Bank Secrecy Act. Gendreau must maintain records of her foreign accounts which contain (1) the name of the account holder, (2) the account number, (3) the name and address of the bank, (4) the type of the account, and (5) the maximum value of the account. 31 C.F.R. § 1010.420. But this is the floor for what is required, not a ceiling. The fact that Gendreau's records may contain more information than this minimal amount does not mean they are not records she is required to keep under the Bank Secrecy Act.

Judge Pauley then addressed the foregone conclusion exception to the Fifth Amendment privilege. Of course, readers -- at least attentive readers -- of this blog will know that the foregone conclusion exception is a separate exception to the Fifth Amendment privilege. If the Government properly invokes the required records doctrine, the foregone conclusion exception is not relevant. As to any documents to which the required records exception does not apply, then the foregone conclusion exception is required to avoid the taxpayer's assertion of the Fifth Amendment privilege via the Act of Production doctrine.

Here is the Foregone Conclusion discussion:

IV. Foregone Conclusion Exception

The act of production is not privileged under the Fifth Amendment when "[t]he existence and location of the papers are a foregone conclusion and the taxpayer adds little or nothing to the sum total of the Government's information by conceding that he in fact has the papers." Fisher v. United States, 425 U.S. 391, 411 (1976). "Production may not be refused '[i]f the government can demonstrate with reasonable particularity that it knows of the existence and location of subpoenaed documents. ", In re Grand Jury Subpoena Duces Tecum Dated Oct. 29, 1992, 1 F.3d 87, 93 (2d Cir. 1993) (quoting In re Grand Jury Subpoena Duces Tecum, 616 F. Supp. 1159, 1161 (E.D.N.Y. 1985)).

The Government argues the existence and location of Gendreau's LGT records for the Miraleste Foundation is a foregone conclusion because it already knows Gendreau created and controlled the Miraleste Foundation, which has or had accounts at LGT19 The foundation's records would be maintained by LGT Treuhand AG, now known as Fiduco Treuhand AG.20 Therefore, the Government knows the foundation's LGT account records exist and that they can be found at Fiduco Treuhand AG. Though the Government cannot show the records are in Gendreau's possession, "[t]he test for production is control, not location." In re Grand Jury Subpoena Dated Aug. 9,2000, 218 F. Supp. 2d 544,555 (S.D.N.Y. 2002). Gendreau would have control over the records ofthe foundation's accounts, even if they are not in her immediate possession.

[Omit brief discussion by the Court]

However, the Government's requests here are not so broad and do not rest on speculation. This case is akin to United States v. Norwood, 420 F.3d 888, 895 (8th Cir. 2005). In Norwood, the IRS obtained information that the respondent had two credit cards issued by banks in the Bahamas. The Eighth Circuit found that

[t]he existence of the requested records relating to Norwood's [credit] cards and account is a foregone conclusion. The summons seeks records such as account applications, periodic acco nt statements, and charge receipts, all of which are possessed by the owners of financial accounts as a matter of course .... [T]he Government knows the name and location of the bank that created the records
sought, Norwood's payment card numbers, and even the details of a number of discrete transactions involving the cards and his [credit card] account.

Norwood, 420 F.3d at 895-96. The Government has equivalent information relating to the foundation's LGT account. In Fox, the Second Circuit appeared to indicate that the Government could obtain account records for specific accounts it was aware of. See Fox, 721 F.2d at 38 ("[T]he mere fact that a tax return reveals on its face that a taxpayer had 'at least one bank account or broKerage account does not give the IRS any information about whether the tax0payer has records of other bank accounts .... therefore, the IRS summons for all books and records of a sole proprietorship and all bank and brokerage records of a taxpayer may compel the taxpayer to add to the 'sum total of the Government's information.'") (emphasis in original). Here, the Government has identified the existence and location of the Miraleste Foundation's LGT account with the "reasonable particularity" required under the foregone conclusion exception. In re Grand Jury Subpoena Dated Aug. 9,2000, 218 F. Supp. 2d at 555.

Let me say that I know Ian Comisky. He is a highly regarded attorney. I personally hold him in high esteem. I don't know Mr. Chaudhury, but that means nothing. I also hold Judge Pauley in high esteem (as readers of this blog who pay attention to such matters will already know).

JAT Comment: Net, net, the Government has a way to force an outing of foreign account records. And, of course, the taxpayer is between a rock and a hard place. If the taxpayer did not maintain the records (at least within his or her power to control) and seeks to avoid compulsory process on that basis, then he or she may be admitting violation of the BSA requirement that he or she maintain the records.

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